ECONOMIC AND VAR SHOCKS: WHAT CAN GO WRONG? | Zendy

FernándezVillaverde Jesús | Zendy; RubioRamírez Juan F. | Zendy

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ECONOMIC AND VAR SHOCKS: WHAT CAN GO WRONG?

Author(s) -

FernándezVillaverde Jesús,

RubioRamírez Juan F.

Publication year - 2006

Publication title -

journal of the european economic association

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 7.792

H-Index - 93

eISSN - 1542-4774

pISSN - 1542-4766

DOI - 10.1162/jeea.2006.4.2-3.466

Subject(s) - economics , identification (biology) , invertible matrix , econometrics , algebraic number , vector autoregression , economic model , mathematical economics , macroeconomics , mathematics , mathematical analysis , botany , pure mathematics , biology

This paper discusses the problem of invertibility between the economic shocks in a dynamic equilibrium model and the corresponding VAR innovations. We present an algebraic check of invertibility based on the model fundamentals and we find the identification scheme that recovers the economic shocks from the VAR innovations when the model is invertible. We illustrate our results with a model of the Great Depression proposed by Christiano, Motto, and Rostagno (2003). (JEL: E00, E32, C32)

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